Insider and Herb Stark of Stark Outdoor were talking yesterday about annual rent inflators and leases.  Many landlords will push for an annual rent increase or a rent increase every five years in exchange for entering into a long term lease.

Here’s a table showing US inflation rates by decade for the past 35 years.  You can see that inflation rates have been falling and are currently running less than 2%/year.

What conclusions can be drawn from this?

• Avoid a high fixed minimum annual rent increase.  Insider has seen lots of billboard leases entered into during the 80’s which had guaranteed annual rent increases of 4-5%/year.  Those leases have become very expensive because they increased at almost twice the rate of inflation.

• Shoot for an annual increase of 1-2%/year or about 5% very five years.

• Agree to a rent which adjusts upwards (or downwards) each year by the change in the local Consumer Price Index.  If you do this, however, you have to pick the consumer price index for your area.  You don’t want to use a west coast Consumer Price Index if your boards are on the east coast or vice versa.

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